A largely meaningless figure without the included context about targeted cuts elsewhere.
That said, corporate taxes[1] currently make up around 10% of the total US tax revenue, so major cuts (35% -> 15%) actually stand to result in a 4.2% drop in total US tax income. This assumes no positive change in corporate growth as a result of the reduced taxes.
You are missing that the reduction should cause some money sitting in coffers outside to flow back in to US. Microsoft, Apple, Goog etc have billions of dollars parked outside the country.
Is there evidence of this? Tax reduction proponents often claim some offsetting benefit, but rarely does it seem to come true. Look up the Laffer Curve from the 1980s, when the Reagan administration claimed that tax cuts would spur economic activity and actually increase tax revenue.
Also, to a degree it's based on the premise that these companies are overwhelmed with high taxes and that is determining their behavior. Perhaps they have other motives or the rate isn't really too high for them.
The evidence is that US corporations are stashing ~$2 trillion dollars offshore. I'm not saying cutting taxes will fix the problem, but it is very apparent that the current tax rate is determining their behavior. Unfortunately it can become a race to the bottom for countries trying to capture the taxes on that income.
> it is very apparent that the current tax rate is determining their behavior
That isn't necessarily true. It could be due to other laws, such as the one that allows them to stash money overseas tax-free. Perhaps that's the law that should change.
> I should have said current tax law, not tax rate, but the getting a lower rate abroad is clearly the main driver.
I wasn't clear: I don't know that I accept that, though of course I've heard it many times. It's a narrative that suits people who want to cut taxes for corporations, but those people always have very convenient narratives. Has anyone seen evidence?
Thanks. The gross numbers depend on far more than tax policy; I'm not sure how meaningful they are. The economy tends to grow no matter what the policy, and remember that the US was coming out of what was, at that time, the worst recession since WWII. That said, I don't have evidence at my fingertips.
(Also, I'm not sure what to think of that website: Their anti-government bias seems to show through and their understanding of economics is poor. For example, the following fails basic microeconomics and pricing: the entire U.S. tax burden really falls on individuals. That's because corporations pass on their tax burden to families in the form of higher prices or lower wages. / Corporations must maintain their profit margin to satisfy stockholders, so they pass on any additional corporate taxes to consumers or workers. If only my company could just set whatever price and wages it wanted, and consumers and workers continued to buy and hire on at the same rate!)
There's very little evidence that tax cuts stimulate economic growth. If there was meaningful evidence the investigators would receive the Nobel Prize -- every year. And while economists can be relied upon to provide all sorts of elaborate theoretical "evidence" the actual empirical evidence tends to confirm the opposite: significant tax cuts have zero to negative impacts on growth [1].
It will be interesting though to see what tax cuts do in such a low-growth environment. In the end it seems Wall St. will be the big winner. There's plenty of actual evidence that tax cuts (a) eventually make it back to investors once finance takes its cut and (b) tax cuts lead to most firms adopting a much higher risk profile [2]. Ironically we could see lots of mergers and overseas expansion.
Does this actually get them to move it here? Apple has huge amounts of money around the world, and I'm not sure what they'd even do with it if they could repatriate it more cheaply. Give it back to investors?
>You are missing that the reduction should cause some money sitting in coffers outside to flow back in to US. Microsoft, Apple, Goog etc have billions of dollars parked outside the country
They won't bring it back if they have to pay 15% on it.
Businesses which repatriated money ended up shedding jobs and cutting R&D, which hurt all Americans outside of the Capitalist class. And the lost revenue from the tax break cost the taxpayer billions.
But, of course, the biggest reason to avoid this scheme is that it failed.
12 years after we did this scheme to bring back some $350 billion, these companies learned that we can be bent to their will, and now they've hoarded some $2,500 billion. Nearly 10X larger horde!
If we give in a second time, we reinforce this behavior that they can horde their money until enough useful idiots will give them anything they want to bring it back. Rinse, and repeat the next time enough useful idiots think that bribing you today will stop you from demanding the bribe again tomorrow.
The US operations aren't cash starved; they can repatriate unlimited funds for operations with no problem, since operations are all deductible expenses which would result in no tax hit from bringing the money back.
We let them bring it back for 5% in 2004 and the result was a net loss to the taxpayer, if I remember correctly.
Well, 5% is probably too low. And I think they will bring it back for 15%. It costs money to maintain all these tax-minimization schemes globally. And America is still Apple's biggest market by far. Being able to leverage all that cash here could make a big difference to their bottom line.
> You are missing that the reduction should cause some money sitting in coffers outside to flow back in to US.
No, it won't. The only reason to repatriate it would be to spend it, which (since corporate "income" tax is a tax on retained profits, not income) would result in a 0% tax with or without the tax cut.
No matter how low (so long as it is non-negative) the US corporate tax rate goes, it makes no sense to reptriate the funds and pay taxes on them otherwise.
The money is sitting outside the US because the companies do not need it in the US, or at all. They have literally no idea how to invest money faster than they can think of investment that would yield more profit than a tracker fund.
The only reason to move the money back to the US would be to hedge against a sudden rise of interest rate that would make funding hypothetical future US venture slightly more expensive. Obviously the rate at which such a hedging make sense is probably very low, single digit low.
Just to make sure: for something to be "revenue neutral" means it can't contain a real reduction in tax revenue offset by a hypothetical gain through "dynamic effects" in the economy?
That would seem to be table stakes for baseline discussion.
As a counterpoint, one could set the tax rate arbitrarily low and then carefully craft a dynamic function that achieves revenue neutrality based on that plan.
1) I'd prefer stories on government finances tell the whole story: Slashing taxes and government services by X. That may or may not be an acceptable trade-off, but usually it's presented as something like Walmart is slashing prices - there's a sale! - only looking at the cost side.
2) Present it as the zero-sum situation it is: If person A pays less, everyone else has to pay more for the same result. Somehow, people have to pay for things, and I think it's widely accepted that people should be making roughly equivalent sacrifices.
(That's not a call for a flat tax rate; 10% of income is much more of a sacrifice to someone making $10K than to someone making $1 million. FWIW, another HN reader told me recently that research says there is roughly a logarithmic relationship between utility and dollar amount.)
I'm skeptical that tax reform has a better chance of making it through this Congress than ACA reform, but:
Can anyone comment on how a lower corporate rate would likely affect S corps and incentives to form them? Maybe a new 15% rate wouldn't apply to such firms, but if it did, wouldn't it represent a pretty big new benefit/loophole for incorporation?
Wouldn't apply to S-corps, as pass-through taxation from the company is applied at the owners' personal tax rate(s).
But, indirectly, the biggest incentive that I can see would be with regard to retained earnings and reinvestment. For an S-corp, shareholders pay tax on profits according to their ownership percentage, irrespective of whether they even receive a distribution from those profits.
And, if on Jan 1, the company invests all of its profit in a new project (essentially wiping out the profit), it doesn't matter. Prior year taxes are still due from shareholders at the full rate. This can generally lead to forced distributions to shareholders just so they can cover taxes.
So, that's painful, especially for a business that's in growth/re-investment mode. Problem is, moving to a C-corp and being doubly-taxed at a 35% corporate rate, and again at a ~30% marginal personal rate is usually even more painful.
So, yeah, a much reduced corporate rate might allow for a different calculus there that incentivizes me to organize as a C Corp vs. S Corp. Let the company take the 15% corporate tax hit and keep the 20% balance vs the old rate. Plus minimize dividends to keep the max amount of money in the company to re-invest.
see my post above - at times trump has stated that this _would_ apply to pass-through entities (s-corps, sole proprietorships and LLCs). at the moment however, this point remains unclear.
The benefit of S-corps is to pass through taxation to the owner's personal tax return in order to avoid double taxation. There is no added benefit with lower corporate taxes because they are effectively 0% at the corporate level.
whether the corporate rate will also apply to pass-through entities is still an open question. most news articles about this topic just ignore this very important detail. the more tax-oriented sources however discuss the vagueness openly:
Republicans talk a big game of fiscal responsibility but when given the chance they do irresponsible things like this and Bush's extensive tax cuts for the wealthy that cost the rest of us billions by running up debt.
We don't know about the side effects yet, but a 15% corporate tax would be the starting signal for some entrepreneurial friends of mine to found a company in the USA the second the bill has passed. There is no other big market with such a low corporate tax.
Corporate taxes are on profits - it's very easy for a company, especially a startup, to not make a profit - ever - if they reinvest the earnings before the end of the tax year or the shareholders make drawings. I don't see how low corporate tax rates will spur new startups - but I do see it as incentivizing the repatriation of foreign-earned income by large multinationals.
On the contrary, I think a higher and progressive corporate tax rate would spur startups because it would serve as a governor to prevent large corporations (of the faceless variety) becoming large conglomerates - which generally have a depressive effect on the economy - thus giving smaller and more nimble startups an opportunity to compete.
> There is no other big market with such a low corporate tax.
Ireland's corporate tax rate is 12.5% ( https://en.wikipedia.org/wiki/Corporation_tax_in_the_Republi... ) and as Ireland is in the EU it has full access to the largest single market in the world - but I'll concede the EU's market is fragmented by localization issues and less demand for high-technology compared to North America.
I can tell you that I would not set foot in a country with high taxes. The US has some special incentives which even nowadays make it attractive (honestly, the US is so rich, big and special that the tax rate does not matter too much in the grand total), but in general, as a European there is no need for me to accept anything more than 25% when starting out. Everyone who starts out wants to keep their money. Especially starters need low taxes so they can invest more (and not only in the present year to get "deductions").
What I want to say: why bother with a 10% tax rate in Bulgaria (which has access to the EU, but gives you some things to explain why you are there) at 100.000 profit when you can have 1.000.000 profit in the bigger market that the US is at 35%.
So, they wouldn't sell to the biggest, richest market in the world, with some of the best infrastructure, cheapest energy, no shortage of wealthy customers and educated labour, (With some of the lowest levels of labour protection in the developed world...) Until we slash the taxes they will pay on profits?
Given that we are in an era of cheap credit, your friends sound insane.
You think that there aren't good markets outside the US and that every business needs/wants to go global. If I want to become a millionaire, I can just stay within the EU and not touch the US at all. So my friends (and me included) do not necessarily have to take the burden to setup business in another continent. But very low taxes AND a big single market are an interesting combination.
To be fair, there are more people worried about how they can afford healthcare and home ownership than worried about increasing the number of millionaires and wealthy corporations in America--we already lead the world there, while we trail behind in the former problems.
The corporate tax rate here in Canada is 15% for profit up to $500,000, and 25% after that.
We also have a lot of rules in place to prevent income from being double taxed, for example if my business pays taxes on $400,000 in profit and I take $150,000 in dividends, I get credit for the 15% in taxes that the business already paid and am only responsible for the other ~15% that I would have owed if I had made all of that $150,000 in regular personal income.
I was surprised to find that the US corporate tax system is so brutal compared to what we have here. Higher rates, double taxation, enforcing that you pay yourself a salary and not just dividends, etc.
IIRC, the overall US corporate tax burden is one of the lowest. The idea that it's so hard on corporations is, AFAIK, a talking point of corporate lobbyists. I'm open to any actual evidence, however.
Even "double taxation" is a talking point. Generally, money is taxed when it is transacted between entities: When someone pays a business (income), when you buy something (sales tax), when an employee is paid (personal income), etc. It's not taxed when it sits still. Money is double-, triple-, and in fact infinitely taxed, using the same definition, as it moves around different entities in the economy. The idea that the transaction between a corporation and its owners should be treated differently is very convenient to a select group of people.
No corporation with a good tax team pays anything more than 20% of taxes. This idea that 15% is going to really be THE thing that spurns business, well, it might work initially, but the reality is, it will just create more federal debt (think Bush tax cuts of 2003). Also, the current tax codes (loop holes) are too favorable for corps. With the proposed lower corp. base tax rate it will just make it easier for corporations to not pay ANYTHING. Wonderful, if it wasn't hard enough to fund schools and roads, now we'll make it even harder. How about simply closing OFF the tax loopholes, give corporations "kickers" to earn tax credits on hiring in the US and other things that could help. Giving them 15% right off the top -- that's so Trump, it's insulting.
> No corporation with a good tax team pays anything more than 20% of taxes
Seems like a good reason to level the playing field, no? We want businesses to succeed by providing better products and services at better prices, not by being extra good at bureaucratic arbitrage.
If you look at large corporations like GE they already pay almost zero percent tax using all sorts of tricks.
I think normalizing the tax rate to what the rest of the developed world has and making it simpler would bring the biggest benefit to smaller businesses such as mom and pop shops.
> No corporation with a good tax team pays anything more than 20% of taxes.
That's not true. Companies with large domestic brick-and-mortar businesses that account for most of their income often pay a lot more than that. CVS pays about 34%. Costco and Walmart pay about 30%. Most of the tricks with foreign tax havens or intellectual property licensing don't work for their kinds of business.
It will lead to a generalized and obnoxious "IR35" problem, which says that "you are NOT a real company", because you just incorporated your activity as an employee to pay a much lower corporate tax instead of the higher personal income tax and other contributions that you should be paying. Paying the lower corporate tax is reserved for TRUE capitalists and not for smaller entities such as yourself, who are in fact meant to be treated as substantially higher-taxed wage slaves.
I am pretty liberal, but I DO think corporate taxes should be lower. We should tax the money that people pull OUT of a business for personal consumption, not the money that is being used to drive the economy.
a) Yes, consumption drives the economy, but consumption does not 'multiply' like investment spending does. It would be much better for the economy for someone to buy a tractor than a speedboat, for example; the tractor is used to create more wealth, while the speedboat does not produce anything. We want to incentivize the investment type spending.
b) Yes personal consumption is already taxed. We would have to change the way and rate we tax to offset lost income, and do it in a way that is not regressive. If we get rid of corporate income tax, we can raise capital gains and income taxes on wealthy people without overly penalizing them.
c) Yes, you can obviously use money earned from one company to invest in another. A good tax structure would recognize that and encourage it.
I think all of this comes down to realizing that taxes do two things, raise revenue and drive behavior. We want to make sure the behaviors we cause are the ones we want as a society, while at the same time raising enough revenue to do the things government needs to do.
Personal consumption is the leading 'driver' (or one of them) of the U.S. economy.
I also don't see the distinction: Why shouldn't corporations pay their share, and why should private citizens have to pay more to cover it (taxes are a zero sum game)? Why is a citizen's personal budget somehow of little value, but corporate budgets are sacrosanct? I'm more concerned with protecting private people than corporations.
> corporate taxes should be lower
Lower than what? On what basis do you say they currently are too high (or too low)?
In short, corporations never 'take' income. It is the shareholders and executives who 'take' the income. Tax the money at that point, and at a level that offsets the loss of corporate income taxes. This would not be shifting the burden to other citizens, it is just realizing the truth that a corporation isn't a REAL person, it is a group of people, and those are the people who should be taxed.
I don't know there's such a thing in economics as 'taking' income. Money is taxed when it is transacted between entities; it's pretty simple. Buy something, pay someone, pass your inheritance to your children, etc., and it's taxed. (It's not taxed when it sits still.)
Now people want to give certain transactions a special status; for some creative reason, this time it's different. What I see is that the transactions that are 'special', such as corporate and estate taxes, benefit the same group of people. Also, the same people shouldn't have their income taxed as highly because they are more important than everyone - they are 'job creators'. How come it's never the taxes of the working class, such as sales tax, that need special treatment?
Yes, we would; one of the main reasons we don't currently is BECAUSE of the corporate income tax. Currently, capital gains are 'doubly' taxed, first as corporate income and then as capital gains. We can offset a decreased corporate income tax by increasing capital gains taxes.
Indeed. I do wonder what the right offset would be to minimize the impact on government revenue.
In any case, unfortunately, I've yet to hear the political advocates for corporate tax reduction/elimination argue nearly as vociferously for an increase in capital gains taxes.
To me it's strange how federal law allows local governments to offer tax breaks to individual companies in order to attract them. Conversely, large corporations can play states against each other for the sweetest deal. As a comparison this isn't allowed e.g in the EU and not between regions within most countries.
Shouldn't a tax reform close that possibility, which should raise a lot of tax revenue, which could then be used to cut corporate taxes, but now in a fair way?
The US Federal government's role isn't to manage all commerce within the states. It's not a matter of what "federal law allows". Managing tax rates within states is not a Federal power enumerated in the Constitution.
It's a good thing that States are forced to compete with each other on offering suitable economic environments for the businesses that they wish to attract. Big corporations can offer significant tax revenues and employment opportunities for the states they call home. There's no reason why States shouldn't use whatever means are at their disposal to attract good companies for their citizens.
You misunderstood me: I'm not saying the states shouldn't be competing for business.
I'm saying states shouldn't be allowed to give tax breaks to individual companies and not to others. That's effectively having different tax codes for different companies.
It's is analogous to having different laws for different people (which, I assume would not be constitutional).
The point is to create good economic environments without allowing corporations to play states against each other.
That could be done without targeting individual companies so yes. Same as it is legal to give incentives to buy green cas by subsidizing light or electric cars taxing gas or heavy cars.
That's just basically Boeing saying "Give us a tax break of N billion or we move from Washington". Legislators afraid to lose their jobs approve. The state keeps the jobs, the legislators keep their jobs. Everyone is happy? Well, except the people in the state that lost a ton of tax revenue.
To be clear: this isn't a tax cut for "the Washington aerospace industry". There aren't going to be any competitors creating buildings for the manufacturing of plane fuselages in Washington state - it's a tax cut directed directly towards Boeing alone. You wouldn't have to be a star lawyer to prove that point.
The argument that "but they create jobs in the state so even with the tax break, Washington state benefits from having them there" doesn't float either. That's how blackmail works. I need my knee caps so even after paying the mobster $10000 for keeping them I come out ahead!
If states weren't able to offer company targeted tax breaks like that, then Boeing couldn't have blackmailed Washington legislators like that. Which would benefit everyone involved (Except of course - Boeing).
Hence my question. So now if you allow industry-specific taxation, then you just craft a special bill that cuts taxes for large airplane manufacturers and Boeing gets a tax cut.
Boeing has a lot to offer a state. They could put their production in lots of places, including in other countries. If a state finds value in having Boeing there, there's nothing wrong with incentivizing them to go there.
If smaller businesses find that the state is hostile to them for one reason or another - maybe because they feel overtaxed because of big breaks for the big companies, then smaller businesses will not do as well in that state and will tend to migrate elsewhere. Then the state might need to rethink its tax policy like New York has been doing with its reduced rates for new businesses.
At the end of the day, we don't need the Federal government micro-managing the states. The USA wasn't formed that way and it would be yet another Federal overreach that would create backlash and perverse incentives. You mentioned the EU. The EU is dealing with that sort of backlash now with Brexit and other referenda. Overreach by central governments is a proven route to tyranny.
Honestly, corporate taxes don't make much sense. It would be much better if we reduced the corporate tax rate to 0% and made up the difference by increasing capital gains tax.
This is the most insane idea I've ever heard of. You do realize that capital gains are only assessed at time of sale of said asset right? So where do we make up the trillions in revenue? How does the govt operate when there is a bear market? I just don't understand why when taxes and economic principles are so simple on a macro level that people seem to get lost on how it all works.
Something that sounds crazy, but way less crazy than what you are floating, would be to have something like a 90% tax on corps with a 3 or 5 year deferment to allow the profits to be invested back into the company. Then, whatever the Corp couldn't figure out how to spend in useful ways would go towards hiring instead of layoffs, raises instead of a race to bottom. The shareholders like me who make money for doing nothing but placing my money there wouldn't make such a killing, but I would rather see this country have a booming middle class than continue the wealth inequality to the point where I can't leave my house to use my toys and defend my big house against raids. I know that sounds a bit hyperbolic but if we stay on the current trend lines at some point in the distant future that day will come. Reducing Corp taxes and eliminating the estate tax are the types of things to accelerate that as opposed to putting us back to a good economic equilibrium.
This seems bad to me. Without a border-adjustment tax (or some easy, intuitive way to figure out what to tax) this just lowers the bar with the same number of loopholes as before.
Companies will still use tax loopholes but now the government will lose even more money.
It's amazing how many people simply don't understand how taxes work.
Taxes are paid on profits, not gross revenue. If my company makes $1M net but I decide to expand my business by buying more equipment or staffing up I can spend that $1M on that and have a net of $0 profit and owe $0 in taxes.
Explain how by lowering the tax rate from 35% to 15% gives me any more money to expand my business when it is taxed on profit, which I could choose to reinvest as much as I want when I want and write it down (current, past or future years)?
All it does it does is it means when I have no where else to spend my profits that it shows up on the balance sheets as profit. Do you know who benefits from that? Shareholders, execs and board members.
All of that extra money will just get locked up in the bank accounts of the people who already can't figure out how to spend the money they already have. It does not create more revenue for the govt, it does not accelerate growth.
History has shown time and again supply side economics does not work. It's not just a theory, the Laffer Curve has been proven to be nonsense as much as it can outside of a vacuum.
The reason the wealthy love the idea is because there are only so many ways to create the growth on the balance sheets that the market demands each year and this would be an easy way to do it.
You think wealth inequality is bad now, wait until you see a 15% Corp tax rate. The people who will pay for the missing trillions in revenue will be the 99% that are already struggling. At some point the system will be too stressed and this could be the proverbial straw.
I would recommend those reflect on the origins of our tax system and how tax was to be derived exclusively from business income and not wages before feeling sympathy for the non-human entity called a corporation.
If you want to see a large influx of growth to the system you force that money to reenter the system. Making it illegal to use shell companies and tax havens purely to reduce tax liability would have injected trillions back into the economy that would have created some great outcomes just based on tax revenues and the need to reduce tax liability thru investment. Read healthcare, education, wages, infrastructure, better jobs, etc.
That said, corporate taxes[1] currently make up around 10% of the total US tax revenue, so major cuts (35% -> 15%) actually stand to result in a 4.2% drop in total US tax income. This assumes no positive change in corporate growth as a result of the reduced taxes.
1: http://www.taxpolicycenter.org/statistics/amount-revenue-sou...
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